Problems Faced By Small Businesses
Small businesses often face a variety of problems related to their size. A frequent cause of bankruptcy is undercapitalization. This is often a result of poor planning rather than economic conditions - it is common rule of thumb that the entrepreneur should have access to a sum of money at least equal to the projected revenue for the first year of business in addition to his anticipated expenses. For example, if the prospective owner thinks that he will generate $100,000 in revenues in the first year with $150,000 in start-up expenses, then he should have not less than $250,000 available. Failure to provide this level of funding for the company could leave the owner liable for all of the company's debt should he end up in bankruptcy court, under the theory of undercapitalization.
In addition to ensuring that the business has enough capital, the small business owner must also be mindful of contribution margin (sales minus variable costs). To break even, the business must be able to reach a level of sales where the contribution margin equals fixed costs. When they first start out, many small business owners underprice their products to a point where even at their maximum capacity, it would be impossible to break even. Cost controls or price increases often resolve this problem.
In the United States, some of the largest concerns of small business owners are insurance costs (such as liability and health), rising energy costs, taxes and tax compliance. In the United Kingdom and Australia, small business owners tend to be more concerned with excessive governmental red tape.
Another problem for many small businesses is termed the 'Entrepreneurial Myth' or E-Myth. The mythic assumption is that an expert in a given technical field will also be expert at running that kind of business. Additional business management skills are needed to keep a business running smoothly.
Still another problem for many small businesses is the capacity of much larger businesses to influence or sometimes determine their chances for success.
Read more about this topic: Small Business
Famous quotes containing the words problems, faced, small and/or businesses:
“...I have wanted to believe people could make their dreams come true ... that problems could be solved. However, this is a national illness. As Americans, we believe all problems can be solved, that all questions have answers.”
—Kristin Hunter (b. 1931)
“The secret of a leader lies in the tests he has faced over the whole course of his life and the habit of action he develops in meeting those tests.”
—Gail Sheehy (b. 1937)
“The confirmation of Clarence Thomas, one of the most conservative voices to be added to the [Supreme] Court in recent memory, carries a sobering message for the African- American community.... As he begins to make his mark upon the lives of African Americans, we must acknowledge that his successful nomination is due in no small measure to the support he received from black Americans.”
—Kimberly Crenshaw (b. 1959)
“One of the first businesses of a sensible man is to know when he is beaten, and to leave off fighting at once.”
—Samuel Butler (1835–1902)